Lloyds Banking Group (LLOY) 29th Annual Financials CEO Conference summary

Economic and operating environment

• Upgraded UK economic forecasts for 2024 and 2025, with GDP growth expected at 2.8% and 1.2% respectively, and unemployment peaking at 4.9%.

• Policy rates are forecast to decline to 3.5% by 2026, supporting a stable and constructive operating environment.

• Deposit growth has exceeded expectations, with GBP 5.5 billion increase in Q2 and continued stability in Q3.

• Mortgage market activity has led to stable completion spreads, with Q2 and Q3 margins around 70 basis points.

• Asset and deposit growth in Q2 were GBP 3.9 billion and GBP 5.5 billion respectively, with retail growth expected to continue in H2.

Strategic and financial targets

• Aims for greater than 15% return on tangible equity (ROTE) by 2026, supported by income growth, cost control, and operating leverage.

• Net interest margin (NIM) is expected to rise as policy rates fall, driven by structural hedge tailwinds and easing mortgage headwinds.

• Structural hedge earnings projected to increase from GBP 3.4 billion in 2023 to over GBP 4.1 billion in 2024, with further growth in 2025 and 2026.

• Capital generation targeted at 175 basis points in the near term, rising above 200 basis points by 2026.

• CET1 capital ratio target set at 13% by 2026, with excess capital returned to shareholders via progressive dividends and buybacks.

Revenue diversification and growth initiatives

• Strategic investments aim to deliver GBP 0.7 billion incremental revenue by 2024 and GBP 1.5 billion by 2026, with at least half from other operating income.

• Focus areas include mass affluent retail, Home Hub for mortgages, and enhanced capital markets capabilities.

• Other operating income up 9% year-on-year in Q2, reflecting progress in diversification.

• M&A activity remains selective, focused on scale and capability, with recent deals in mortgages, investment platforms, and motor finance.